Who incurs the risk of ownership in a leasing arrangement?

Who incurs the risk of ownership in a leasing arrangement?

• A. Lessee
• B. Lessor
• C. Both parties
• D. None

Answer: (B)

In a leasing arrangement, the lessor incurs the risk of ownership. This is because the lessor retains legal ownership of the asset throughout the duration of the lease. Since the lessor maintains ownership, they are responsible for potential risks associated with the asset, such as depreciation, maintenance costs, and any liabilities arising from the asset’s condition or use. The lessee, on the other hand, has the right to use the asset for the term of the lease but does not own it, which means they do not bear the long-term risks or benefits of ownership, such as significant value fluctuations over time. This structure allows the lessee to access the necessary equipment or property without bearing the full financial responsibility or risks linked to ownership. In summary, the lessor is who incurs the risk of ownership in a leasing arrangement, as they keep the asset's legal title while the lessee enjoys its use.

In a leasing arrangement, the lessor incurs the risk of ownership. This is because the lessor retains legal ownership of the asset throughout the duration of the lease. Since the lessor maintains ownership, they are responsible for potential risks associated with the asset, such as depreciation, maintenance costs, and any liabilities arising from the asset’s condition or use.

The lessee, on the other hand, has the right to use the asset for the term of the lease but does not own it, which means they do not bear the long-term risks or benefits of ownership, such as significant value fluctuations over time. This structure allows the lessee to access the necessary equipment or property without bearing the full financial responsibility or risks linked to ownership.

In summary, the lessor is who incurs the risk of ownership in a leasing arrangement, as they keep the asset's legal title while the lessee enjoys its use.